The competition watchdog has approved German yoghurt maker Müller’s move to skim off Dairy Crest’s dairies in a deal that will mean a big pay day for Mark Allen, its chief executive.
The £80 million takeover of Dairy Crest’s milk processing sites and its Frijj milkshake brand was announced last November but the Competition and Markets Authority stepped in over concerns that Britain’s milk industry could suffer from a lack of competition between producers.
Müller and Dairy Crest are two of the three biggest dairy processors in the UK, handling 3.5 billion litres of milk a year and nearly half of all milk drunk across the country. The regulator said it was paying particularly close attention to the deal, given the “significant financial challenges” facing the sector.
The CMA had particular concerns about the sale of the company’s Severnside dairy and the subsequent impact on the milk market in the south-west England and in Wales. This afternoon it said it had accepted Müller UK and Ireland’s proposed remedy. Müller’s UK subsidiary will process up to 100 million litres of milk a year for smaller rival Medina Dairy over at least the next five years, with an option to extend the deal for a further three.
“The CMA is confident that, with its financial backing and experience, Medina Dairy is in a good position to begin supplying large retailers and continue investing in this area,” the regulator said.
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Sheldon Mills, its senior director of mergers, said the remedy offered a “clear-cut” solution to competition concerns: “It results in the accelerated entry of a competitor, Medina Dairy, which has the necessary financial backing, commitment and capability to succeed in serving large national retailers.”
Following the deal, the bulk of Britain’s milk processing will be handled by Arla UK and Müller. When the sale was first announced Mark Allen, chief executive of Dairy Crest said that scale was crucial in the milk business and argued the increased efficiencies possible at bigger processors would help keep prices down.
About 15 per cent of Mr Allen’s annual bonus this year is linked to the completion of the deal. All Dairy Crest staff receive a bonus each year and part of these bonuses have also been linked to its completion.
He had also separately been awarded an all-share “transformational incentive award”, valued at about £1.2 million which should vest in 2017, provided the company hits certain performance targets.
Unite, the union, has called him a “fat cat” that got the cream over the incentives but he has insisted the takeover is good for the UK dairy industry, the company and consumers.
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The National Farmers Union called the deal a ” positive step in building an increasingly sustainable dairy sector”. When the deal was first announced it was assured that farmers milk contracts will pass from Dairy Crest to the new owners. The 400 or so farmers who supply milk for the company’s cheese business will also be unaffected, it said.
The deal with Müller will leave Dairy Crest with its profitable cheese and butter businesses. It owns several brands including Country Life butter, which is promoted by John Lydon, the punk musician and former Sex Pistols frontman. It also makes Cathedral City and Davidstow cheddar.
Some analysts believe a slimmed down Dairy Crest could make an attractive takeover target with its valuable cheese and butter brands both growing last year whilst its dairies saw profits collapse by 90 per cent to just £1.8 million in the year to March 31.
Dairy Crest’s milkmen have been leaving the company’s distinctive glass bottles on British doorsteps since the Second World War and it employs around 1,400 people as part of its milk delivery business, which has also been sold to Müller. Thirty years ago 90 per cent of milk was delivered — today just 10 per cent is.
It began life as the Milk Marketing Board in the 1930s which was famous for wartime slogan “every gallon counts”. Dairy Crest emerged when the board started making and selling cheese and butter from excess milk in the 1960s. It was spun out as a separate division in 1980.